Union finance minister Arun Jaitley is right when he announced in the budget that new measures will be taken to incentivise credit/debit card transactions and disincentivise cash transactions.
As a white paper on black money pointed out three years ago, payments by credit/debit cards through Indian e-service intermediaries could further bring down the costs of using such cards, improve their acceptability, and reduce the cash economy. The government can deliberate providing tax incentives for use of credit/debit cards and consider collection of tax at source at a low level on cash purchases.
Cash sales in gold and jewellery trade are quite common and serve two purposes.
The purchase allows the buyer the option of converting black money into gold and bullion, while it gives the trader the option of keeping unaccounted wealth in the form of stock, not disclosed in the books or valued at less than market price. Investment in property is a common means of parking unaccounted money and a large number of transactions in real estate are not reported or are under-reported.
There is no gainsaying that a crackdown on the grey economy has been long overdue. The government is right when it says that the time has come to hold it to account with a firm grip.
What the government should be wary of is handing out unbridled powers to enforcement agencies under the proposed new laws. Concealment of income and evasion of tax in relation to foreign assets will be prosecutable with punishment of rigorous imprisonment (RI) up to 10 years, and offenders will not be permitted to approach the settlement commission; those caught concealing income and assets will be penalised at 300% of the tax due.
And not filing returns or inadequately disclosing foreign assets could result in seven years’ RI.
While the moves are well meaning, enough care should be taken to ensure that the new laws are not prone to misuse and applied as instruments of political and administrative vendetta.